Big Lots (BIG) opened lower today after reporting second-quarter earnings per share (EPS) of $0.59 vs. $0.67 — $0.08 lower than expectations. The difference in results was primarily due to several factors: further increases in transportation costs, which took away roughly $0.05 per share in the quarter; higher-than-expected markdowns on seasonal items following a weak spring selling season; and  slower-than-anticipated new store openings.

Having said that, I feel this is the typical overreaction to bad results we have seen many times this year, and I expect BIG shares to make a quick recovery. Comparable store sales gains were solid at 1.6% in the quarter and are off to a good start in August. Also, Big Lots’ redesigned stores continue to do very well.

While the company will still likely struggle a bit in the third quarter, which is not a seasonally important one, positive earnings comparisons are likely to resume in the fourth quarter as the number of remodeled stores continues to grow. I believe BIG can earn $4.45 per share this fiscal year and $4.85 next year. Plus, the stock is currently a bargain at 9x earnings.

Given the rise in overall market valuations and the improvements going on in BIG under the earnings surface, I am raising my buy under price to $42 and my target price to $52.